News & Research

Peak profit-making period has passed for Australia’s housing market

Australian vendors seeking to profit from the resale of their property have seen the peak of the market come and go in the June quarter, as data shows the number of loss-making transactions are on the rise.

CoreLogic’s latest Pain & Gain Report, which analysed approximately 102,000 property resales that occurred in the June 2022 quarter, showed Australia’s profit-making sales plateaued at 93.8% when compared to the previous three months.

However, the rolling quarterly rate of profit-making sales showed the three months to April reached a resale gain peak of 94.1%, which coincided with the height of national dwelling values.

CoreLogic Head of Research Eliza Owen says the April peak for both profitable resales and national home values aligned with the first of several sharp and consecutive rate hikes.

“This particular Pain & Gain report provides a line in the sand and confirms the moment when the housing market peaked and started to turn,” she said.

“The figures align with peak growth in our national Home Value Index and highlights the decline in the rate of profit-making sales, which has been largely influenced by an increase in the rate of loss-making resales in Sydney and Melbourne.”

Sydney’s rate of loss-making sales increased 160 basis points to 6.4%, coinciding with a quarterly decline in home values of -2.8% over the period. The portion of Melbourne loss-making resales were up 50 basis points in the quarter, to 5.3%, as home values fell -1.8%.

“Multiple interest rate hikes have led to a weakening in the home values in Sydney and Melbourne however residential resale results in some cities remain strong with significant gains across almost all resales,” she said.

“Resales data suggests a notable increase in loss-making unit sales across the Sydney council region, including in high-density city fringe markets like Waterloo, Zetland and Roseberry.”

The report isn’t wholly negative for vendors, with strong resale figures still prevalent in smaller capital cities including Canberra, Hobart and resource cities.

Hobart and Canberra topped the capital cities for the rate of profit-making sales, each with 99.1% of resales achieving a nominal gain. Hobart has recorded four consecutive years of vendors recording the highest rate of nominal gain across the greater capital city markets.

Ms Owen said the improvement in some cities during the June quarter may reflect the actions taken by motivated sellers who took advantage of a recent high in dwelling values.

National Pain & Gain

Nationally, the portion of houses that made a nominal gain (96.5%) was higher than across the unit segment (88.1%). Investors saw nominal gains from 90.9% of resales, falling short of the 96.7% for owner-occupiers.

Longer hold periods were also generally associated with higher nominal gains. Property owners who sold after 30 years saw a median nominal return of more than $800,000, while the median hold period of all resales in the quarter was nine years, which placed the initial purchase date in the June quarter of 2013.

As Australian property values move through the downswing, Ms Owen expects median hold periods will increase as more recent buyers are less likely to sell in a downturn.

“The most recent housing market upswing, which took place between September 2020 and April 2022, saw a total increase of 28.6% in national housing values,” she said.

“This has led to substantial gains over relatively short hold periods. However, as the housing market continues its downswing, the nominal gains achieved from that relatively short hold period have already started to erode. “In the March 2022 quarter, vendors who sold after only two years were achieving a median gain of approximately $170,000. However, by the end of June, that median nominal gain made within two years of purchase had reduced to $150,000.”

Houses vs Units

Both houses and units have seen an uptick in loss-making sales from the three months to April 2022 (April was also the month that the CoreLogic Home Value Index hit a record high for houses and units nationally).

The rate of profitability across the house market has since declined around 10 basis points through to the end of the June quarter, and the rate of unit resales that made a nominal gain fell faster at 70 basis points.

“The relative strength in return from the house segment comes down to a few factors, including the value associated with land and the strength of owner occupier demand for houses over the past two years,” Ms Owen said.

“As noted in previous reports, the unit segment in Australia, particularly in the high density, investment centric centres of Sydney, Melbourne and Brisbane, saw a surge in construction from 2012 to 2017.

“However, macroprudential changes to investment and interest-only lending triggered a downturn in investment demand for housing through 2014 and 2017. The combination of a surge in supply and loss in investment demand has contributed to weaker conditions across some of these markets.”

Regional markets

The rate of loss-making resales in regional Australia continued to trend lower through the June quarter, falling 30 basis points to 5.4% from March, marking one of the lowest periods of loss-making resales since the three months to April 2008.

Ms Owen said regional Australian home values rose in the June quarter, bucking the national trend, however regions have since followed the capital city markets into a relatively sharp housing market downturn.

Through July and August, regional Australian home values declined -2.2% from a peak in June, which is likely to weigh on profitability in the regions going forward, she said.

Tree change and sea change markets continue to record increases in profitability with only 1.9% of resales in coastal and non-coastal lifestyle areas recording a nominal loss in the June quarter, down from 2.3% in the three months to March 2022.

Ms Owen said this marked a record low for the rate of resales with a nominal loss for the combined tree change and sea change markets.

“There were slight increases in the rate of loss-making sales across Geelong, the Gold Coast, Richmond Tweed and the Sunshine Coast, but these increases were marginal,” she said.

“Nonetheless, it is unsurprising to see these markets experience a slight shift in profitability, given these same markets are leading a sharp decline in value across regional Australia.”

Pain & Gain Outlook

As the Australian housing market continued to see value declines through to the end of August, it is expected the rate of profit-making sales may be moving past a peak level. In the coming quarters, more broad-based dwelling value declines may place a limit on profitability for sellers.

Ms Owen said in Sydney the notable uptick in the rate of loss-making unit sales was likely due to an increase in investor stock being sold off.

Melbourne’s steep decline in dwelling values had impacted the number of profit-making sales, particularly across the city centre, where more than a third of resales were sold for a nominal loss.

“Rising rates may be triggering more sales decisions among investors, contributing to the increase in loss-making unit sales across the city,” she said.

“As rates continue to rise, it is likely the rate of profit-making sales will continue to fall in the coming quarters.”

Download the latest Pain & Gain report


Eliza Owen

Meet Eliza Owen

Head of Residential Research Australia

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Eliza Owen was appointed the Head of Research at CoreLogic Australia in 2020.

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